Life Insurance: a Right Investment or Not?
posted in Cheap Auto Insurance |Life insurance policies can be divided into two very broad groups - term insurance and permanent life insurance. Term insurance policies are generally prepared to cover you for a limited period of time, usually 10 or 20 years. With a permanent policy, the insurance can go on for your lifetime. Permanent policies can be further sub-divided into three additional groups: Term 100, Universal Life and Whole Life. Universal Life and Whole Life are available in more variations. The best insurance for you and your situation can be found in cooperation with a qualified insurance advisor.
When you pay the premium for a Whole Life policy, it already includes the investment part, but in case of Universal Life policies, it is paid separately. In addition, Universal Life policies have a wider variety of investment possibilities. The number one quality of any life insurance policy is making sure it fills your need. Supposing your needs are met and a permanent policy is within your budget, the following question is whether it’s a sound investment?
There are a lot of different and often opposite opinions on this subject, partly because not many people really understand the topic of life insurance as an investment. The following are the advantages and minuses of using life insurance as an investment:
Pluses
* Proceeds within the policy and the MTAR limits increase on a tax sheltered basis. In case of Whole Life products, the premium shouldn’t exceed the MTAR limit, Universal Life policies set a maximum premium according to the MTAR limit.
* The investment component on an increasing death benefit Universal Life policy and the dividends on a Whole Life policy are added to the face amount and are paid out on top of the policy face amount tax free.
* You can use the investment component on a permanent policy to pay for future premiums, allowing you to pay future premiums with pre-tax dollars, rather than after-tax dollars.
* The minimum investment rate guarantees are set to more than 4% in case of numerous Universal Life insurance products. In the current low interest rate world, this is a great feature.
Disadvantages
* Permanent policies usually have surrender penalties if the client gives up the policy within the first few years.
* Permanent policies are usually an inadvisable investment if you don’t have a permanent life insurance need because you’ll be paying a higher mortality charge for the life insurance.